Friday, June 27, 2008

Fixing Credit for Home Purchase

I still answer phone calls almost daily from people wanting to get pre-approved for a home loan who have no down payment and a credit profile with more problems than the agent responsible for resurrecting Brittany Spears acting career. These are well meaning people who could buy a home for what they are paying in rent, if only their credit allowed them to do so.

A well dressed couple sitting across from the desk from me tells me they want to purchase a $175,000 home in a nice subdivision here in Edmond. “My credit isn’t so good. My score is about a 560. I’ve been working on improving my scores, but I don’t know how to speed up the process.”

Genuine empathy is the best way I can describe my feelings for this couple. He continues. “We pay our mortgage and credit card payments on time but the three credit cards we have are maxed out at the $500 limit. The limits are so low because when we got them our credit was really bad. We’re not sure if we should pay these balances off. And we don’t know how to get the recorded slow pays and collections off our credit report.”

This is just one example of the many that regularly come my way. Make no mistake, their credit score of 560 is much worse than “not so good”, it’s awful. Consider that credit scores range between 300 and 850 and that half the adults in America have at least a 700 credit score. Anything below 620 is considered sub-prime. Even FHA cuts off loan approval for scores below 580.

According to credit score creator Fair Isaac, people with credit scores between 550 and 599 have a 51% chance of defaulting on a home loan or any credit account. Contrast this figure with the 2% likelihood of default from people with scores over 750 and it becomes obvious why lending guidelines have tightened significantly for lower scored borrowers.

There is no “quick fix” for credit scores. Think about it; you probably didn’t get into your situation over night and you’re not going to get out of it in a week or two. Most likely it will take several months or even years to correct negative credit reporting.

Still you can speed up the credit repair process by paying all credit card balances in full and never use more than 10% to 20% of the available funds on any one card and pay those balances in full each month. This is the fastest way to improve credit scores.

If you find yourself using 30% or more of the available balance each month, you should consider asking the card carrier for an increased limit. By keeping the amount of utilized credit at or below 20% your scores should realize the maximum benefit.

While rebuilding credit scores it would also be a good idea to be saving up money for a down payment and closing costs. Unless you are a veteran with V.A. benefits, the smallest down payment any lender allows is 3% of the purchase price. Both Fannie Mae and FHA have these programs. V.A. home loans still allow qualifying veterans to finance up to 100% of the purchase price.

In addition to the down payment you should plan on saving enough to cover your share of the closing costs. For a $200,000 home you should expect between 2% and 3% in closing costs. For a $100,000 home the percentages are higher. Check with your preferred lender to get an accurate cost estimate. This way you’ll be able to set an accurate savings plan.

There are professionals who specialize in credit repair and enhancement. Should you decide to use these services, carefully check out their track record by asking for and calling several of their previous clients. The guidelines for home purchases have tightened and will probably tighten again before they relax. If your credit is challenged, let me assure you that it is worth the time and effort to repair it.

Friday, June 6, 2008

The Housing Markets Silver Lining

I’m not an ostrich and I definitely don’t like picking sand out of my teeth. So before you accuse me of burying my head, here’s the disclaimer. My job is financing real estate. I’m exposed to at least the same number of housing market reports as you are. And just this morning I read reports about the increasing jobless market numbers. I’m not an ostrich and I’m also not blindly optimistic.

Just this week the Jackson family (not their real name) signed a contract on a home and we signed paper work for 95% financing. I’ve also spoken with several Realtors who are in negotiations with sellers to sign purchase contracts and other Realtors who are very busy showing buyer’s lots of listings.

I have marketing signs out all over the metro area with a toll-free phone number that plays a pre-recorded message about homes for sale. Every day I receive several email messages that report who and when someone called for information. Realtors are glad when I give them the name and phone number of these prospective buyers.

Title companies are still busy researching abstracts and updating title reports for closings. Home inspectors are still climbing all over homes and writing reports. Pest inspectors are still busy inspecting for pests. Appraisers are still taking measurements and pictures. Real
Estate Agents are still holding open houses and sending buyers lists of potential homes to buy. And the sign companies are still making “For Sale” signs that will soon be stuck in someone’s front yard.

Lenders still have plenty of money to loan for new home purchases as well as refinances; and interest rates remain relatively low. The criteria for qualifying to get this money have changed quite a bit, but many still qualify.

Oklahoma property owners have retained most if not all their property values and in some cases have actually seen a modest increase. The number of home sales is about on par for the same time last year as is the average purchase price.

Gas prices are up…okay, they’re ridiculous. It costs more to go to the grocery store, the drug store, and our favorite restaurants. At the same time, utility rates are about the same, property insurance rates are good, and we’ve dodged several severe weather bullets that could have caused wide spread damage to homes and businesses.

There are new home starts all over northwest and northeast Edmond. Several new neighborhood developments have sprung up in recent months and in my new neighborhood new homes are being bought faster than they can be built.

My point is simple. Life is a balancing act. We have to balance work and family, responsibilities with play time, and the money coming in with the money going out. But the most important balancing act any of us have centers on our attitude. It is true, attitude is everything. And make no mistake, each of us chooses our own attitude.

The unfortunate reality is that we are barraged with a daily overdose of negative news. Headlines announce the instability of the stock market, the effects the rising costs of fossil fuel has on all consumables, while self-proclaimed experts give chase to the perfect storm in the housing industry which they claim is the worst anyone has ever seen.

We may have never experienced all of these exact conditions in their precise proportions, but we are not in totally unexplored surroundings. Our economy is not broken it’s simply flexing. And like a rubber band that has been stretched it will flex a bit and while it will never return to its original shape in all likelihood it will rebound.

What we are experiencing is change. And not many of us truly like it. But the best way I have found to tolerate change is to maintain perspective. And that’s what I’ve tried to help you do in this brief article. The Oklahoma economy is still thriving. Our housing market is strong. It’s our attitude that needs some adjusting. So I challenge you to join me and celebrate the silver lining when the only thing someone else points out is the cloud.